1、Empowering Your Business10 Steps to Effective Third Party Risk Management2Future-proofing your business:10 steps to effective TPRMContentsIntroduction:Establishing Effective TPRM CapabilitiesIn Summary0317Overcoming Barriers to Effective TPRM Implementation0410 Steps to TPRM Success083Future-proofin

2、g your business:10 steps to effective TPRMIntroductionEstablishing Effective TPRM Capabilities2024,and moving into 2025,will be significant for third party risk management(TPRM).The business landscape is changing rapidly,driven by external factors including regulations and wider market movements.Org

3、anisations are now increasingly reliant on third parties and their subcontractors to deliver critical services,meaning theres more risk to consider than ever before.Traditional TPRM methods just arent up to the challenge anymore,and its clear that a new approach is needed.But in this complex new lan

4、dscape,how do you begin designing and developing a robust TPRM capability for your organisation?This whitepaper outlines 10 practical steps to establish effective TPRM capabilities.By focusing on what matters most,setting a clear vision,and implementing a strategic approach,you can navigate the comp

5、lexities of the modern business environment and mitigate the risks associated with third-party relationships.4Future-proofing your business:10 steps to effective TPRMOvercoming Barriers to Effective TPRM ImplementationWhile the benefits of a robust TPRM programme are clear,there are several signific

6、ant hurdles that can impede successful implementation.Here,we delve into these common barriers and explore strategies to overcome them.Securing board support and investmentHistorically,TPRM hasnt always received the necessary backing from leadership.Heres how to shift the perspective:Highlight the v

7、alue proposition:Clearly articulate the financial and reputational risks associated with inadequate TPRM.Showcase how a robust programme can prevent costly incidents and enhance brand reputation.Demonstrate alignment with regulations:Emphasise how effective TPRM aligns with evolving regulations that

8、 demand robust oversight and governance of third-party relationships.Build a compelling business case:Develop a data-driven business case outlining the cost-effectiveness of a TPRM programme and the potential return on investment(ROI).5Future-proofing your business:10 steps to effective TPRMAddressi

9、ng the expanded risk frontierThe ever-expanding risk landscape necessitates a broader organisational approach to managing third-party risk.This requires:Overcoming institutional silosFragmented operations and a resistance to change can hinder TPRM implementation.Foster a collaborative environment th

10、rough:Collaborative risk management:Work closely with third parties to identify,understand,and control risks throughout the entire value chain.This fosters a shared responsibility for risk mitigation.Cross-stakeholder collaboration:Break down silos by establishing clear communication channels and co

11、llaborative working groups that involve key stakeholders from Risk,Legal,IT,Operations,Security,and other relevant departments.Lifecycle risk culture:Align risk management practices across the entire third-party lifecycle,from onboarding to offboarding.Enterprise-wide risk management:Integrate TPRM

12、with existing enterprise risk frameworks,ensuring consistency and alignment across the organisation.Governance maturity gaps:Close gaps in governance frameworks and processes to ensure consistent oversight and control throughout the third-party relationship.Risk-based approach:Implement a risk-based

13、 approach to TPRM,prioritising efforts based on the potential impact of third-party relationships.6Future-proofing your business:10 steps to effective TPRMAligning framework fragmentationHistorically,third-party management practices often relied on disparate frameworks and processes.Heres how to cre

14、ate a unified approach:Gap analysis:Conduct a comprehensive review of existing frameworks,processes,and procedures related to third-party management.Identify overlaps,redundancies,and areas where practices fall short of best practices or regulatory expectations.Standardisation:Develop and implement

15、standardised TPRM frameworks,policies,and procedures that apply across the organisation.Consolidation:Consolidate fragmented practices into a single,unified TPRM framework that provides a holistic view of third-party risk.7Future-proofing your business:10 steps to effective TPRMDeveloping a sustaina

16、ble operating modelShort-term solutions may seem quicker and easier,but they lack long-term sustainability.Build a future-proof model through:Strategic focus:Develop a long-term strategic plan for TPRM that aligns with the organisations overall risk management objectives.Scalability and agility:Desi

17、gn a TPRM operating model that is scalable and flexible enough to adapt to evolving regulatory requirements and the ever-changing risk landscape.Continuous improvement:Establish a culture of continuous improvement within the TPRM programme,regularly evaluating its effectiveness and incorporating bes

18、t practices.8Future-proofing your business:10 steps to effective TPRM1.Set a clear vision and strategyTPRM is a maturing risk management principle.Establishing a vision and strategy requires a coordinated effort from senior management,including a board-level mandate,investment,and cross-departmental

19、 engagement.Depending on your existing TPRM practices,functions such as Risk,IT,Information Security,Legal,and Procurement may already manage specific elements.A network of existing frameworks and processes likely supports TPRM activities.Due to its cross-functional nature,multiple stakeholders will

20、 contribute to the overall vision and strategy.This can be a resource-intensive exercise,especially for large firms,and may require a multi-year programme to fully define,design,and deploy a sustainable TPRM capability.Therefore,setting a clear vision and strategy from the outset is essential to lay

21、ing the right foundations.10 Steps to TPRM SuccessDrawing on our extensive experience of programme delivery and deep subject matter expertise,we have identified the 10 essential steps you need to take to establish a robust TPRM programme for your organisation.9Future-proofing your business:10 steps

22、to effective TPRM2.3.Establish and mobilise a TPRM programmeDevelop an actionable roadmapA dedicated TPRM programme team should be responsible for executing the vision and strategy,and coordinating the activities needed to define,design,and deploy the necessary TPRM capabilities.The programme should

23、 begin by assessing how your organisation currently manages third-party risk.This initial assessment will identify and bring together key stakeholders,raise awareness of the challenge,and inform effective planning.The programme will also play a crucial role in overcoming any barriers to change,and d

24、rive efforts in addressing organisational,cultural,technological and data issues that could impact the ability to determine,assess,manage and control third party risk.To achieve your desired outcomes,the TPRM programme needs a documented roadmap.This roadmap acts as a compass,guiding the implementat

25、ion process from vision to execution and supporting the overall strategic direction.Having a clear roadmap ensures proper programme governance,execution oversight,and accountability.It also demonstrates to the board how the TPRM investment aligns with the overall vision and strategy.10Future-proofin

26、g your business:10 steps to effective TPRM4.Leverage existing initiativesIn recent years,attention has been focused on initiatives such as Operational Resilience and Outsourcing Compliance programmes.As a result,most firms should have a clear idea of their most critical and dependent third-party rel

27、ationships by now,as well as mapping dependencies.This is a good starting point for any TPRM Programme to understand the nature and extent of critical third parties within their wider populations.Leveraging and collaborating with other strategic initiatives will also be mutually beneficial.Operation

28、al Resilience programmes,for example,may require a more robust TPRM focus to address key dependencies and gaps in oversight and governance.11Future-proofing your business:10 steps to effective TPRM5.Review and harmonise existing frameworksMany organisations may not be fully aware of their existing T

29、PRM capabilities and resources,due to a lack of formalisation and a previously fragmented approach.A company-wide review can help identify all resources and artefacts currently deployed that touch upon TPRM.This exercise will determine the effort needed to harmonise disparate frameworks and identify

30、 areas where skills or capabilities need strengthening.12Future-proofing your business:10 steps to effective TPRM6.Develop a sustainable enterprise-wide TPRM operating modelThere are various TPRM operating models to consider,ranging from decentralised(local or entity ownership of third-party relatio

31、nships)to centralised(harmonised oversight across the organisation),with hybrid models offering a balance between the two.However,the fragmented nature of third-party risk environments necessitates a shift towards centralised control,and we have seen a progressive shift towards centralisation to man

32、age and control TPRM capabilities across organisations,starting with the most critical services.This allows for the development of integrated,company-wide oversight capabilities to assess,manage,and control TPRM risk posture.However,choosing the right model for you will depend on your organisational

33、 structure and legal entities.Future-proofing your business:10 steps to effective TPRM137.Build an effective TPRM risk and control frameworkOrganisational complexity,unclear roles and responsibilities,and fragmented governance structures can all hinder the effectiveness of the TPRM engagement model

34、across the three lines of defence preventing vertical and horizontal alignment.Multiple business units,legal entities and control functions can often have a degree of involvement in third party risk management.By reviewing the current framework environment to address fragmentation,as well as definin

35、g the TPRM target operating model,the TPRM programme will be able to identify and implement improvements needed to establish a holistic TPRM risk and control framework.An integrated framework empowers stakeholders to understand their roles and responsibilities within TPRM by establishing common risk

36、 and control standards.The specific design and implementation will vary depending on your risk management maturity,the nature of your third-party population,and internal complexities.This framework ensures clarity,consistency,and effectiveness of the TPRM model across all three lines.14Future-proofi

37、ng your business:10 steps to effective TPRM8.Implement risk-based principles throughout the third-party lifecycleRisk assessments should be conducted throughout the entire third-party lifecycle,starting with a comprehensive assessment at the onboarding stage.This assessment should utilise tiered ris

38、k factors based on the type of third party and the services they provide.The TPRM framework should define risk segmentation,categorising relationships from low-risk to high-risk,with the latter requiring the most stringent oversight and control.Implementing a lifecycle approach ensures a comprehensi

39、ve and risk-centric framework throughout the entire third-party relationship.The TPRM lifecycle model should embed risk management principles through the start,middle,and end of a third-party arrangement so that the risk profile is dynamically adjusted throughout.“15Future-proofing your business:10

40、steps to effective TPRM9.Establish framework alignment and cascade matrixOrganisations can struggle to integrate TPRM frameworks with their existing strategic frameworks.Focus on strategic alignment and a functional cascade of the Enterprise Risk Management Framework(ERM Framework)and Operational Ri

41、sk Management Framework(ORM Framework)into the TPRM Framework.Successful strategic alignment and functionality will better enable a top-down integration of risk appetite statements and metrics combined with framework standards and functional alignment.This ensures a clear demarcation between the thr

42、ee lines of defence,along with oversight,governance,reporting,and transparency.A framework alignment and cascade model will enhance and drive a level of embeddedness and standardisation throughout the firm.However,organisations often struggle to align and stack the right building blocks to enable ef

43、fective integration.16Future-proofing your business:10 steps to effective TPRM10.Implement a TPRM technology platform to automate risk reporting and managementThere is still a heavy reliance on fragmented manual processes,with many organisations using numerous documents,spreadsheets,and duplicate re

44、ports.This highlights a real need to address risk data,process workflows,and disparate technological solutions.Utilising TPRM technologies and reporting tools to improve and automate oversight and governance tasks will enable the aggregation of risk and provide robust intelligence.However,this will

45、also require initiating a TPRM data strategy to ensure data quality and integrity.The first priority on the road to a technology platform is to address the completeness of the third-party population by having a fully centralised inventory of all third-party relationships.Secondly,the platform should

46、 be able to read across regulatory and compliance requirements to support risk identification and categorisation activities.TPRM policies,procedures,and process monitoring must be enabled through integrated risk-centric tools to improve the holistic monitoring and control of third-party risk.Togethe

47、r with automated risk workflows,businesses will be in a better position to oversee and govern their third-party risk environments.Utilise technology to help automate and streamline processes,and establish a technology and data architecture that delivers the right level of agility.This will aid senio

48、r decision-making by integrating and connecting oversight,risk management,and governance processes,vastly improving the accuracy of risk intelligence.“17Future-proofing your business:10 steps to effective TPRMBy following these 10 steps,your organisation can build a strong foundation for effective T

49、PRM capabilities,navigate the complexities of the modern business environment,and mitigate the risks associated with third-party relationships.To discuss any of these steps in more detail,or find out how Wavestone can support the design and implementation of your TPRM strategy,please get in touch with the team.In Summary